Big things often have small beginnings. While the rags-to-riches stories maybe a tad cliche, they inspire and speak to the potential that lies within humble beginnings.
Investing, especially stock market investing, can be intimidating to many. Admittedly, finance seems to be full of endless mumbo-jumbo. However, no one starts out knowing all that fancy jargon. Even the greatest of investors grew their knowledge along the way. Did you know that the legendary investor, Warren Buffet, is said to read five to six hours a day?
TAKE CONTROL OF YOUR PERSONAL FINANCES
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You do not need to have a lot of money or be finance guru to start investing. The most important thing is to take that first step.
So, are you ready to get your money working for you? Keep on reading for some beginner-friendly ideas to gainfully invest $1,000 (or less).
1. INVEST IN YOURSELF
Investing in yourself is first on the list because if neglected, all other kinds of investments have little meaning. Further, investing in yourself has the highest return on investment, and it will always stay with you. Investing in yourself includes taking care of your physical, mental, and spiritual health.
Here are some the essential reasons why you should invest in yourself:
- It boosts your self-confidence and improves your performance
- It broadens your perspective and helps you to stop sweating the small stuff
- You’ll feel happier about your life through self-discovery and goal-setting
- Your relationships improve when you become a better version of yourself
You can invest in yourself through fitness, maintaining a healthy diet, taking courses, attending seminars and workshops, reading more books, hiring a personal coach, travelling, etc.
Keep in mind these three profound quotes on investing in yourself:
- “Income seldom exceeds personal development.” – Jim Rohn
- “Personal development is a major time-saver. The better you become, the less time it takes you to achieve your goals.” – Brian Tracy
- “Investing in yourself is the best investment you will ever make. It will not only improve your life, but it will also improve the lives of all those around you.” – Robin Sharma
2. INVEST IN INDEX FUNDS
An index fund is a mutual fund that aims to mirror the performance of a particular market index. For instance, the S&P 500 index tracks the performance of 500 largest companies listed on stock exchanges in the United States. If you were to buy an index fund that tracks the S&P 500, you essentially become a partial owner of all the 500 companies included.
For beginner investors, investing in index funds is a great way to get into the stock market for the following reasons:
i) Broad diversification
Index funds are inherently diversified as they hold hundreds of various companies. If one company performs poorly, the other companies pick up the slack, and there would be a minimal (if any) negative impact on your portfolio. On the other hand, if you hold one individual stock that performs poorly, it could decimate your portfolio.
ii) Low Cost
Index funds are typically passively managed since fund managers do not have to spend time researching stocks to include (or exclude) in the portfolio. They simply mirror a given index. As such, index funds incur much fewer costs than actively-managed funds, making them a low-cost investment.
iii) Simple to understand and hands-off
As index funds track the entire market, you do not need to spend time researching and picking stocks. Further, the goal of an index fund is to mirror the market performance, not beat it. Few actively-managed funds can outperform the market, so index fund investing is a good bet for a beginner or passive investor.
The cons of index fund investing
Alas, all good things must come to an end! A significant downside to index fund investing is that there is little control over the portfolio holdings within an index fund. Further, you may miss out on the exponential upside of an individual stock.
Index fund examples
Some of the best index funds in Canada in 2020 include:
- Vanguard FTSE Canada All Cap Index EFT (VCN)
- iShares Core S&P/TSX Capped Composite Index EFT (XIC)
- Horizon S&P/TSX 60 EFT (HXT)
- BMO S&P TSX Capped Composite IDX EFT (ZCN)
Some of the best index funds in the United States in 2020 include:
- Vanguard S&P 500 EFT (VOO)
- Fidelity ZERO Large Cap Index (FNILX)
- Schwab S&P 500 Index Fund (SWPPX)
- iShare Core S&P 500 EFT (IVV)
3. INVEST IN REITs
REIT stands for Real Estate Investment Trust. It is a company that owns or finances income-producing real estate assets. REITs are typically publicly traded, and as such, you can buy and sell them like stocks on a particular stock exchange.
REITs can be a great investment strategy for beginner investors for the following reasons:
i) Stable cash flows through dividends
REITs are legally required to pay a minimum of 90% of taxable income in dividends to investors. REITs typically pay out dividends monthly or quarterly, providing a stable source of cash flows to investors.
ii) More diversification
There is little correlation between the performance of a REIT and stock prices. This low correlation offers diversification to your portfolio as REITs could hold their value and even move upward when stocks are declining.
Being publicly traded on major stock exchanges, you can buy and sell REITs whenever the markets are open. This is in contrast to buying and selling real estate property which requires a lot of time and expertise.
iv) Attractive returns
REITs are historically one of the best-performing asset class, often outperforming the S&P 500 index and other indices. In addition to diversification, adding REITs to your portfolio could also result in a healthy bank balance.
The cons of REIT investing
Since REITs have to pay 90% of their income to investors, they do not pay taxes on profits. As such, the tax burden falls on the investors, making them a tax-inefficient investment. Further, since only 10% can be reinvested back into the REITs, they have low growth and low capital appreciation.
Check out these related articles:
- Mutual Funds, Index Funds & ETFs – Which One Is Best For You?
- Should You Invest or Pay Off Debt?
- Budgeting for Beginners + Free Budgeting Template
4. MONEY MARKET FUNDS
A money market fund is a mutual fund that only invests in highly liquid and short-term securities such as U.S. Treasuries, certificates of deposit, corporate commercial paper, etc. It offers high liquidity and a low level of risk.
A money market fund is not to be confused with a money market account. Money market accounts are interest-earning savings accounts offered by banks. A federal corporation usually insures it up to a specified amount. Money market funds are investments and therefore carry no guarantee of principal. Money market funds can be purchased through brokerage firms such as TD Direct Investing.
Money market funds carry a mere single-digit return. However, the performance is much higher than that of savings accounts and can at least match inflation. The main reason for using a money market fund is to park your cash gainfully as you figure out how to invest more profitably.
Other advantages of money market funds include:
- Low-risk investment. Money market funds are among the least volatile instruments as they invest in low-risk instruments such as treasury bills, certificates of deposit, and short-term commercial paper.
- Liquidity. It is generally easy to retrieve funds, and assets are available by the next business day.
- Better returns than savings bank accounts. Money market funds generally earn more than high-interest savings bank accounts.
Money market funds are an excellent short-term investment option. However, they are not suitable in the long-run as they provide low returns and no capital appreciation.
5. START AN ONLINE BUSINESS
Starting an online business takes a lot of effort, but it is a lot easier today than it has ever been. There are now many beginner-friendly website creation tools, and social media is available to everyone. Below are some reasons to start an online business.
- The Startup cost is minimal. You can launch and maintain a website for less than $300 per year. Some online business ventures (such as starting a YouTube channel) only require a recording device, editing software, and access to the internet. In contrast, most traditional brick-and-mortar businesses need substantial capital investment to start.
- Access to a worldwide market. Whereas a traditional brick-and-mortar store’s reach is limited to a specific geographical region, the scope of an online business is limitless.
- Flexibility. An online business offers you the flexibility of where and when to work. This location-independence can be empowering, especially for anyone seeking an optimal work-life balance. However, this does not mean that less effort is required. Instead, an online business provides a stronger correlation between effort and reward.
- Passive income. The potential to earn passive income with an online business is limitless. For instance, YouTube videos can generate revenues for years as long as the content remains relevant and continues to attract views.
Learn more about how to make money online or start an online business here.
If you enjoyed this article or have any questions, please leave them in the comment section below! I’d love to hear from you! Also, please feel free to share this with anyone that may benefit from it as well.
“Courage is resistance to fear, mastery of fear – not absence of fear.” ~ Mark Twain